Digital economy or high tax revenue?
An irony of most third-world countries is that honest taxpayers pay more tax and need to be more compliant than those who tend to dodge the system. Not only that, often honest taxpayers even end up getting fined for non-compliance!
While I was the finance director in a leading multinational company, we figured out that the company inadvertently under-paid on perquisites by a few crores. When the matter was brought to the attention of the regional office, the payment was sanctioned as being compliant.
I met the tax commissioner in person and informed him of the incidence. For obvious reasons, he was surprised and at the same time, pleased with our honesty, and henceforth, agreed to accept the payment.
But all hell broke loose when we finally made the payment! Concerns were raised from the lower levels of the tax office on how to show it in their books and a nightmare unfolded as we tried to manage those concerns!
Bangladesh is well on its journey to a digital economy. Taxation and regulations play a pivotal role in reaping the benefits of a digital economy.
It has already been established globally that digital penetration like mobile use penetration, bank app penetration, and mobile financial service penetration drive GDP faster. Digital penetration also significantly improves transparency in economic activity. In the process, non-taxpayers can also be brought into the tax net. In the process, a larger group of people enjoys the benefit of the digital economy.
In Bangladesh, the digital industry (mobile, fixed, internet service providers, and payments) is highly taxed by comparison to global best practices. A conducive regulatory environment, especially the tax framework, is essential to accelerating a country's digital transformation and maximising the benefits of connectivity. This is particularly relevant to Bangladesh as it is now facing the challenges of penetrating the low-income groups to connect the unconnected.
As per the Eighth Five-Year Plan, the ICT Division plans a "revision of tax, VAT and surcharge to reduce internet price" during the financial year of 2022, which would greatly contribute to the agenda: Universal affordable access to internet broadband connectivity.
Now, let's look at the reality.
Data and voice consumers pay more than 31 per cent directly to the NBR in the form of 15 per cent VAT, 15 per cent supplementary duty, and 1 per cent surcharge. The TCMO (tool measuring the affordability of mobile services) for Bangladesh is estimated to be over 35 per cent. It is 14 per cent for South Asia and 13 per cent for Asia, according to the GSMA.
Despite the government incentive for local production of mobile devices, the affordability of mobile phones remains out of reach for many. Such high consumer taxes are keeping digital usage at the lowest.
Tax revenue is meant to be collected to serve the people. Here, the government may consider directly passing the benefits to the users, which will have a direct impact on the GDP.
Let's look at the taxes charged by the Bangladesh Telecommunication Regulatory Commission (BTRC) at the company level: revenue sharing is 6.5 per cent and about 10 per cent in the form of spectrum fees, spectrum amortisation and license fee.
The National Board of Revenue (NBR) has imposed Tk 200 tax on each SIM card and a 2 per cent as a minimum turnover tax.
If the consumer and the company component is added, the total tax impact will be approximately a whopping 60 per cent. Payment to the ecosystem players may range from 10 per cent to 17 per cent.
In my conversations with senior NBR officials, it came out that they are forced to impose more taxes on the big and honest taxpayers for two key reasons: first, it is easier to collect tax from them; and second, it is impossible to meet the incremental revenue target imposed without charging these groups.
There is surely a logic in the argument. Hence, the matter needs to be dealt with at the policy level of the government.
The government may consider minimising the consumer tax burden by removing the 15 per cent supplementary duty and 1 per cent surcharge, withdrawing the SIM tax to support penetration, and offering a lucrative incentive to mobile network operators, MFS providers, ISPs, banks, and e-commerce players. It may be in the form of tax rate reduction or any other forms deemed appropriate by the authorities
For taxation purposes, all the digital ecosystem players are to be treated as a priority sector like the power sector.
To drive revenue collection, setting a minimum data price based on true costing in collaboration with an organisation like the International Telecommunication Union may be considered. It will be a win-win for all the parties concerned and will obviously increase significant revenue collection for the BTRC and the NBR.
Bangladesh is a land of opportunity and accelerating its digital growth is key to its digital transformation. The government's achievements in digital space are undoubtedly impressive. Now the time has come to piece together all the commendable works, including aligning the tax policy, to achieve the goal of a digital economy.
If the tax regime is not conducive, we may end up doing a lot of things like hi-tech parks, economic zones and digital labs without seeing the result. It is a collective effort and we all know what needs to be done, but lack sincerity in doing it.
The author is a telecom and management expert.